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TheStreet Open House

5 Stock Picks for Long-Term Investors

BOSTON ( TheStreet) -- Intel (INTC), Verizon (VZ) and Lockheed Martin (LMT) are the types of large cap stocks investors should navigate towards, says John Buckingham, chief investment officer of Al Frank Asset Management, thanks to dividend yields and less volatility.

One investment theme Buckingham touches on is buying stocks that are yielding more than the 10-year Treasury, which is currently hovering around 2.47%.

"It's rare when mainstream companies are yielding more than the 10-year Treasury," he says. "You have to go back to the 1960s for the last time that happened."

John Buckingham
John Buckingham, chief investment officer of Al Frank Asset Management

For investors, Buckingham says it comes down to one simple question: Would you rather invest in the debt of a company, the debt of the U.S., or some of the greatest companies?

The decision for investors should be easy, considering today's record-low interest rates.

"I'd rather invest in those companies. Not only do I get the capital appreciation potential, I also get the income piece through dividends," says Buckingham. "I'm a total return investor, but dividend payments have been a substantial part of total return."

Designed for long-term-oriented investors, the Al Frank Fund (VALUX) has assets of about $92 million. Al Frank Asset Management, founded in 1977 and based in Laguna Beach, Calif., has $450 million under management and another $1.2 billion in assets under advisement through a division of the firm that acts as an institutional manager.

"We've managed money with a value-oriented strategy," says Buckingham. "We take a very long-term view of things. The average holding period is anywhere from three to five years, sometimes shorter depending on volatility."

As of Aug. 31, Mosaic (MOS), Disney (DIS), Archer-Daniels Midland (ADM), Occidental Petroleum (OXY) and Apple (AAPL) are among the fund's largest holdings.

"We want to buy businesses that we would prefer to own over the long haul and we like to do that at attractive prices," says Buckingham. "We go to where the opportunities reside. Larger cap stocks become even more attractive because of stable earnings, the businesses are diversified across business lines and geographies, and the volatility is lower."

Since it was started in January 1998, the Al Frank Fund has had an annualized return of about 8.6%, beating the 2.6% gain of the Russell 3000, which the fund uses as a barometer of the broad market.

The Al Frank Fund performed well during the so-called "lost decade," when stock indices like the S&P 500 and Dow were essentially flat. Over the last 10 years, the fund has returned 5.7%, compared with a 0.9% decline in the Russell 3000. That 10-year performance earned the fund a three-star rating from Morningstar, which labeled the 10-year return "above average."

"Give me another lost decade and I'd jump up and down, because our flagship fund averaged 9% per year in terms of return," Buckingham says. "Large caps essentially went nowhere during the 'lost decade,' so when I talk about an emphasis on large-cap stocks we see value and opportunity in that area primarily because it's the area that has lagged behind for a decade."

Over a shorter time horizon, the Al Frank Fund hasn't measured up as well to the Russell 3000 or the Wilshire 5000 indices. The fund has fallen 12.6% over three years, while the Russell 3000 is down 9.4% and the Wilshire 5000 has dropped 9.2%. That three-year performance was given two stars by Morningstar due to below-average returns.

"Relative to our mid-cap peer group, we don't look so hot in the short run," Buckingham concedes, although he notes that relative to most of the all-cap funds Al Frank looks much better.

Investors who are looking for assemble a portfolio of large cap value stocks can follow some of Buckingham's five selections to help manage a long-term game plan.

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